Most merchants will agree that there are few issues extra pleasurable than driving a gradual up pattern all the best way to the highest. Sadly, because the outdated adage goes, “all good issues should come to an finish”. That is notably true in buying and selling which is why it’s important to grasp when a transfer to the draw back is more likely to emerge and tips on how to handle your danger accordingly. On this article, we are going to share with you what the hanging man candlestick reversal sample is and tips on how to commerce it.
WHAT IS THE HANGING MAN?
A dangling man candle (aptly named) is a candlestick formation that reveals a pointy enhance in promoting strain on the top of an present uptrend. That is usually led to by many market members believing the market has reached its highest stage ensuing within the ‘bears’ outweighing the ‘bulls’. This may be noticed within the GBPUSD chart beneath the place it’s clear to see the pink candle showing on the prime of the upward pattern on account of mass promoting strain.
GBP/USD HANGING MAN CANDLESTICK
CHARACTERISTICS OF THE HANGING MAN CANDLE
The hanging man candle is characterised by having a small actual physique, little or no higher shadow (wick) and a decrease shadow not less than twice the size of the physique.
- Upward pattern: The hanging man can solely be recognized as such as soon as it has shaped on the prime of an uptrend.
- Opening stage: The hanging man candle can both be a inexperienced candle (bullish), or a pink candle (bearish) though, the bearish candle offers a greater indication of a weakening market.
- Higher shadow: A small higher shadow signifies that there was an try to keep up the present uptrend earlier than the numerous drop within the value of the Pound Sterling.
- Lengthy decrease shadow: That is in all probability one of the insightful observations on the candle, depicting a big unload earlier than the bulls tried to regains some floor forcing the closing value to finish up considerably nearer to opening ranges however nonetheless down for the interval.
- Closing stage: On this case the closing stage was beneath the opening stage and due to this fact, confirms that it is a bearish hanging man candle.
IDENTIFYING HANGING MAN CANDLESTICK TRADING SIGNALS
The hanging man candlestick can be utilized to establish a brief commerce (bearish view of the market) because the lengthy shadow signifies large promoting. The true check of the legitimacy of the hanging man candlestick is commonly revealed in subsequent exercise on the chart. If the next candle strikes additional down and breaks beneath the quick time period upward pattern line, this may be seen as a continuation of the downward long run pattern. One other potential entry stage might be to enter the commerce as soon as the market has moved previous the low of the hanging man candle.
TRADING THE HANGING MAN?
You will need to view the hanging man candle formation in relation to the long run pattern. One of the best ways to do that is to utilize a number of time-frame evaluation. Begin off by viewing the market utilizing an extended time-frame chart just like the every day or weekly time-frame to watch the path the market is tending to in the long run. Then, zoom-in utilizing a smaller time-frame chart (Four hour or 2 hour) to research the perfect entry level to your commerce.
Step 1: Determine the long run pattern
View the chart on an extended time-frame (maybe a every day chart) to get an thought of the path the market is heading. You don’t want to position a commerce in the other way of the long run pattern.
Step 2: Recognizing your excellent entry level
Making use of a shorter time-frame chart (Four hour chart), establish the perfect entry level. The hanging man candle formation offers us with a sign for a brief commerce.
Step 3: Make use of supporting indicators
Does the Relative Energy Index affirm that the market has turned and now in a downward pattern? Has the 20 SMA line crossed over the 50 SMA line? Does the hanging man candlestick seem close to the highest of the quick time period uptrend? Is a related Fibonacci retracement stage close by?
Step 4: Place your commerce
Search for an entry level on the low of the hanging man candlestick. In case your bearish view of the market is right, you will note subsequent value motion shifting down – offering you with a sign to position your quick commerce.
Step 5: When to shut out of the commerce?
Every time getting into a commerce it’s at all times finest to have not less than a 1:2 Danger-to-Reward ratio. You’re risking half of what you propose to achieve. Which means that the space out of your entry stage to your take revenue stage needs to be twice the space out of your entry stage to your cease loss stage.
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